Papes: For employees, Hostess’ deal is far from sweet

Saturday

Nov 24, 2012 at 10:42 AM

Bob PapesMoney Matters

As many have heard, Hostess Brands, the producer of such products as Twinkies and Wonder Bread, indicated recently that it’s asking a federal bankruptcy court for permission to close its operations, blaming a strike by bakers protesting a new contract imposed on them.

According to CNN, Hostess’ nearly 18,500 workers will lose their jobs as the company shutters 33 bakeries and 565 distribution centers nationwide, as well as 570 outlet stores. The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union represent about 5,000 Hostess employees. The union had gone on strike to protest the company’s proposed pay cuts and other concessions, which were opposed by the union’s membership.

The CEO of Hostess Brands said, “We deeply regret the necessity of the decision, but we do not have the financial resources to weather an extended nationwide strike.” Hostess plans to sell its assets to the highest bidder. That could mean new life for some of its most popular products, which could be bought at auction.

A letter that Hostess sent to its network of stores said it expects “there will be great interest in our brands.” The letter said it could not give a time frame for when the sales would take place and when its products would be available again. But even if those brands are bought and restarted, the sad news is that Hostess workers probably won’t get their jobs back.

While approval of the bankruptcy court is needed before Hostess can start selling its assets in liquidation, the company said production at all of its bakeries has stopped, effective more than a week ago.

A bankruptcy court judge in White Plains, N.Y., sent the two parties into mediation talks last Tuesday, saying it was worth one more effort to save the firm’s 18,000 jobs.

Unfortunately, those talks failed, and Hostess has asked a judge to liquidate its operations.

There is talk of a Mexican company being interested in buying the business.

Now get this: Hostess Brands planned to ask the bankruptcy judge for approval to pay $1.75 million in executive bonuses — even as they attempt to liquidate the company’s assets. Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company’s position is that the bonuses are below market rates. The general public seems to be concerned about whether they will continue to be able to buy their snacks. The real learning here, though, is the inability of management and workers to come together to not only save a company but make it successful.

Here you have a classic lose-lose business scenario.

Regardless of how this comes out, paying top executives bonuses for managing a company in a way that resulted in halting its operations and liquidating its assets is insanity.

Bonuses must be earned for performance. Performance means good results.

Seeing a company fail and people lose their jobs is sickening. For management and unions to learn from this debacle and change their ways is priceless.

Bob Papes is a local business expert and the author of two books, “Management During an Economic Crisis” and “Turnaround.” Reach him at www.rpapes@bellsouth.net.